Federal Register / Vol. 72, No. 35 / Thursday, February 22, 2007 / Notices 8051 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 

4 17 CFR 240.19b–4(f)(2). 5The Nasdaq–100(), Nasdaq–100 Index(), 

Nasdaq(), The Nasdaq Stock Market(r), Nasdaq–

100 SharesSM, Nasdaq–100 TrustSM, Nasdaq–100 

Index Tracking StockSM, and QQQSM are trademarks 

or service marks of The Nasdaq Stock Market, Inc. 

(‘‘Nasdaq’’) and have been licensed for use for 

certain purposes by the Philadelphia Stock 

Exchange pursuant to a License Agreement with 

Nasdaq. The Nasdaq–100 Index() (the ‘‘Index’’) is 

determined, composed, and calculated by Nasdaq 

without regard to the Licensee, the Nasdaq–100 

TrustSM, or the beneficial owners of Nasdaq–100 

SharesSM. Nasdaq has complete control and sole 

discretion in determining, comprising, or 

calculating the Index or in modifying in any way 

its method for determining, comprising, or 

calculating the Index in the future. 

6The Exchange’s payment for order flow program 

is currently in effect until May 27, 2007. See 

Securities Exchange Act Release No. 53841 (May 

19, 2006), 71 FR 30461 (May 26, 2006) (SR–Phlx–

2006–33). 

7The Exchange uses the terms ‘‘specialist’’ and 

‘‘specialist unit’’ interchangeably herein. 

8Therefore, the payment for order flow fee is 

assessed, in effect, on equity option transactions 

between a customer and a ROT, a customer and a 

Directed ROT, or a customer and a specialist when 

a customer order is directed to a specialist or 

Directed ROT who participates in the Exchange’s 

payment for order flow program. 

9The term ‘‘Directed Order’’ means any customer 

order to buy or sell, which has been directed to a 

Continued 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55290; File No. SR–PHLX–

2007–05] 

Self-Regulatory Organizations; 

Philadelphia Stock Exchange, Inc.; 

Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change as Modified by Amendment 

No. 1 Thereto Relating to Changing the 

Payment for Order Flow Fee for 

Options Subject to the Penny Pilot 

Program 

February 13, 2007. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder, 2

notice is hereby given that on January 

25, 2007, the Philadelphia Stock 

Exchange, Inc. (‘‘PHLX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been substantially prepared by the 

Exchange. On February 8, 2007, the 

PHLX submitted Amendment No. 1 to 

the proposed rule change. PHLX has 

designated this proposal as one 

establishing or changing a due, fee, or 

other charge imposed by PHLX under 

Section 19(b)(3)(A)(ii) of the Act 3 and 

Rule 19b–4(f)(2) thereunder, 4 which 

renders the proposal effective upon 

filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as amended, from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Phlx proposes to decrease its 

payment for order flow fee from $0.70 

per contract to $0.25 per contract for the 

equity options that trade as part of the 

Exchange’s Penny Pilot Program to 

quote and trade options in penny 

increments (as discussed in more detail 

below). Listed below is each option 

class included in the Penny Pilot 

Program and the effective date of the fee 

change for such option class. 

Symbol Underlying security 

Anticipated effective date (for 

trades settling on or after the 

dates set forth below) 

IWM ............. ishares Russell 2000 Index Fund ................................................................................................ February 12, 2007. 

SMH ............ Semiconductor Holdrs ................................................................................................................. February 12, 2007. 

GE ............... General Electric Company ........................................................................................................... February 5, 2007. 

AMD ............ Advanced Micro Devices, Inc ...................................................................................................... February 12, 2007. 

MSFT ........... Microsoft Corporation .................................................................................................................. February 5, 2007. 

INTC ............ Intel Corporation .......................................................................................................................... February 12, 2007. 

CAT ............. Caterpillar, Inc .............................................................................................................................. February 12, 2007. 

WFMI ........... Whole Foods Market, Inc ............................................................................................................ January 29, 2007. 

TXN ............. Texas Instruments Incorporated .................................................................................................. February 12, 2007. 

A .................. Agilent Tech Inc ........................................................................................................................... February 12, 2007. 

SUNW ......... Flextronics International Ltd ........................................................................................................ February 12, 2007. 

FLEX ........... Sun Microsystems, Inc ................................................................................................................ February 12, 2007. 

For the Nasdaq–100 Index Tracking 

StockSM traded under the symbol QQQQ 

(‘‘QQQQ’’), 5 the payment for order flow 

fee would be decreased from $0.75 to 

$0.25, anticipated to be effective for 

trades settling on or after February 12, 

2007. 

Other than the rate changes described 

above, no other changes to the 

Exchange’s current payment for order 

flow program are being proposed at this 

time. 

This proposal is to become effective 

for trades settling on or after the rollout 

date for each option listed above and 

would remain in effect until May 27, 

2007.6

The text of the proposed rule change 

is available at the Exchange, the 

Commission’s Public Reference Room, 

and http://www.phlx.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change, and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. PHLX 

has prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Currently, the Exchange assesses a 

payment for order flow fee of $0.70 per 

contract for equity options other than 

options on QQQQ. Options on QQQQ 

are assessed $0.75 per contract. 

Specialists,7 Directed Registered 

Options Traders (‘‘Directed ROTs’’) and 

Registered Options Traders (‘‘ROTs’’) 

are assessed a payment for order flow 

fee when a customer order is directed to 

a specialist unit or Directed ROT who 

participates in the Exchange’s payment 

for order flow program.8 Trades 

resulting from either Directed9 or nonVerDate Aug<31>2005 14:11 Feb 21, 2007 Jkt 211001 PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 E:\FR\FM\22FEN1.SGM 22FEN1

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8052 Federal Register / Vol. 72, No. 35 / Thursday, February 22, 2007 / Notices 

particular specialist, Remote Streaming Quote 

Trader or Streaming Quote Trader by an Order Flow 

Provider. 10AUTOM is the Exchange’s electronic order 

delivery, routing, execution and reporting system, 

which provides for the automatic entry and routing 

of equity option and index option orders to the 

Exchange trading floor. See Exchange Rules 

1014(b)(ii) and 1080. 

11Electronically-delivered orders do not include 

orders delivered through the Floor Broker 

Management System pursuant to Exchange Rule 

1063. 

12See Securities Exchange Act Release No. 54886 

(December 6, 2006), 71 FR 74979 (December13, 

2006) (SR–Phlx–2006–74). 

13See supra, note 6. 

14 15 U.S.C. 78f(b). 

15 15 U.S.C. 78f(b)(4). 

16 15 U.S.C. 78s(b)(3)(A)(ii). 

17 17 CFR 240.19b–4(f)(2). 

18For purposes of calculating the 60-day period 

within which the Commission may summarily 

abrogate the proposed rule change, the Commission 

considers the period to commence on February 8, 

2007, the date on which the Exchange filed 

Amendment No. 1. 19 17 CFR 200.30–3(a)(12). 

Directed Orders that are delivered 

electronically over AUTOM10 and 

executed on the Exchange are assessed 

a payment for order flow fee, while nonelectronically-delivered orders (i.e., 

represented by a floor broker) are not 

assessed a payment for order flow fee.11

Separately, the Exchange intends to 

implement a six-month pilot period 

beginning on January 26, 2007 (the 

‘‘pilot’’), during which certain options 

(the options set forth in this proposal) 

would be quoted and traded on the 

Exchange in minimum increments of 

$0.01 for all series in such options with 

a price of less than $3.00, and in 

minimum increments of $0.05 for all 

series in such options with a price of 

$3.00 or higher, except that options 

overlying the QQQQ would be quoted 

and traded in minimum increments of 

$0.01 for all series regardless of the 

price.12

The purpose of this proposal is to 

assess payment for order flow fees in a 

manner that the Exchange believes is 

more appropriate in light of the pilot. In 

connection with the implementation of 

the pilot, the Exchange proposes to 

decrease the amount of the payment for 

order flow fees in the options that are 

subject to the pilot because the 

Exchange believes that, with narrower 

minimum increments and therefore 

possibly narrower spreads, specialists, 

Directed ROTs, and ROTs may face 

tighter profit margins if coupled with 

the current $0.70 (or $0.75 for QQQQ) 

payment for order flow fee. By reducing 

the payment for order flow fees in the 

options that are subject to the pilot, the 

Exchange believes that members and 

member organizations should continue 

to display strong liquid markets, 

without being financially burdened with 

the higher payment for order flow fees 

that are currently in effect. 

The purpose of establishing different 

effective dates is to implement the 

proposed payment for order flow fees on 

the date on which each specified option 

is rolled out in connection with the 

pilot. The proposed fees would remain 

in effect until May 27, 2007.13

2. Statutory Basis 

The Exchange believes that the 

proposed rule change to amend its 

schedule of fees is consistent with 

Section 6(b) of the Act 14 in general, and 

Section 6(b)(4) of the Act 15 in 

particular, in that it is an equitable 

allocation of reasonable fees and other 

charges among exchange members. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing proposed rule change 

has been designated as a fee change 

pursuant to Section 19(b)(3)(A)(ii) of the 

Act 16 and Rule 19b–4(f)(2) 17

thereunder, because it establishes or 

changes a due, fee, or other charge 

imposed by the Exchange. Accordingly, 

the proposal will take effect upon filing 

with the Commission. At any time 

within 60 days of the filing of such 

proposed rule change the Commission 

may summarily abrogate such rule 

change if it appears to the Commission 

that such action is necessary or 

appropriate in the public interest, for 

the protection of investors, or otherwise 

in furtherance of the purposes of the 

Act.18

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–PHLX–2007–05 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–PHLX–2007–05. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of such filing also will be 

available for inspection and copying at 

the principal office of PHLX. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–PHLX–2007–05 and should 

be submitted on or before March 15, 

2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.19

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–2986 Filed 2–21–07; 8:45 am] 

BILLING CODE 8010–01–P 


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